Between paying bills, spiking rent prices and crushing student loan payments, it’s no surprise that millennials are finding it increasingly difficult to save for retirement. According to the National Institute of Retirement Security, 66% of working millennials have nothing saved for retirement.1 Instead, they’re busy paying down debt and covering their general living expenses, while saving for retirement is pushed to the bottom of their priority list. As a millennial, I know it can be difficult to prioritize a goal that is so far in the future. For that reason, it’s important to always remember that saving now will pay off later and is what will allow us to live the retirement lifestyle we hope to achieve.
Who is Saving and How
The missing third from the statistic above (33%) are the millennials who are currently saving for retirement.1 This is great to see, but the real question is are they saving enough? A survey conducted by LendEDU reported that 49% of millennials (Americans between the ages of 22 and 37) spend more on dining out per month than they put towards retirement, and 27% spend more on coffee alone.2 Millennials not saving may be due to their employer not offering a retirement plan, having part-time status that deems them ineligible to participate in their employer plan, or being self-employed. While these may be roadblocks that make it harder to save for retirement, it shouldn’t stop you from saving for your future. Depending on your situation, there are options outside of the standard 401(k) plan for saving. Just a few of these options include Traditional, Roth and SEP IRAs (Individual Retirement Accounts), where you can save for retirement on your own (i.e. you don’t have to be covered by an employer plan). Even if you are covered by an employer plan, IRA options can be a great tool for additional savings. If you are covered by an employer plan and are fortunate enough to have an employer match offered, always try to contribute at least the amount being matched. This is an easy way to increase your retirement savings at no additional cost to yourself.
Retirement Expenses to Consider
There is a great deal to consider when it comes to expenses throughout retirement, especially with millennials having such a lengthy expected retirement. In the past, it was common to be able to get by with social security benefits and a high paying pension from your employer that would cover daily expenses. Social security is intended to aid seniors once they reach retirement age, however it is not intended to be the sole source of income throughout retirement and it should not be expected to be. Even if you could manage to live off your social security check by living in a low-cost-of-living area and maintaining a simple lifestyle, all it takes is one emergency to throw everything off without any savings to fall back on. Healthcare is another sizable cost to consider in retirement, which is often forgotten as we’re so used to being covered by our employers. Although Medicare, a federal health insurance program, is available once you turn age 65, it is not free. Plus, while it offers some basic coverage, depending on your situation and health, additional coverage may be necessary which can come at a high price.
Save More by Starting Now
Here is a simple calculation to put retirement savings into perspective and show power of compounding interest over time. Say, for example, you are 25 years old now, saving $200 a month in a retirement account and earning an average 7% return.* By the time you turn age 65, you would have accumulated $524,962.68 in the account and only have contributed a total of $96,000. Clearly the more you can save early on and use compounding interest to your advantage, the better. In addition to compounding interest, consider that as you advance in your career your salary may increase, allowing you to contribute more each month to your retirement account. Plus, if you add a company match into the account, you’ll accumulate even more!
I realize it’s not always so cut and dry and there may be times you cannot afford to save as much. If you need to decrease your retirement contributions for a year so you can pay off some debt with the intention of bumping it back up after, that is perfectly fine. As long as you have a plan and adjust it accordingly, you should be able to stay on the right track to reach your goals. The main point is you must have a retirement savings goal in mind and always keep it within sight. It also helps to remember that whatever you don’t save now, you’ll probably end up needing to make up for in the future. Many millennials aren’t saving enough for retirement, so I hope this is a reminder of how important it is and provides some useful suggestions for how to save.
Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.
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